Suominen - Many earnings levers needed
Suominen reports Q4 results on Jan 29. FY’26 should see better earnings, yet growth may still be hard to come by.
FY’25 earnings remained low due to a lack of volumes
Suominen’s FY’25 continued on a subdued note as profitability still didn’t recover. Q4 earnings could show incremental improvement y/y (we estimate Q4 EBITDA at EUR 4.6m) despite certain challenges, yet FY’25 EBITDA is likely to add up to no more than EUR 15m. The new CEO initially emphasized operational efficiency more than we would have expected as volume growth drivers remain elusive for now. Suominen should be able to achieve EBITDA well above EUR 20m this year considering there were also one-off issues at two of its US plants last year, and even if the environment remains challenging the figure should be headed towards EUR 30m.
Many initiatives needed for a meaningful earnings recovery
Raw materials prices declined 5% more q/q in Q4; Suominen should remain in a good position from the perspective of sales margins, as nonwovens prices were still relatively high, which has been the case for a while now. If Suominen manages to improve efficiency further, which in our view shouldn’t be very easy as the company has already undergone such reviews in the past years, there should eventually be multiple favorable levers for earnings growth. Even though Suominen doesn’t have much pricing power the potential added cost efficiencies could still help its margins, but in the end volume growth is the most significant driver. Early FY’26 may still lack meaningful volume growth, yet Suominen is in our view set to guide at least some amount of improving EBITDA for the year while it remains again unclear how steeply the figure may gain. Suominen is likely to elaborate more on strategic updates at some point this year; the company already mentioned certain more attractive market niches like moist toilet tissue, as well as the fact that the US market has better demand outlook than Europe.
Multiples imply expectations of improving earnings
Suominen is valued above 11x EV/EBIT on our FY’26 estimates, which we consider an elevated level in the light of major uncertainty around earnings recovery pace. The 7x multiple on our FY’27 estimates would already be attractive, but it implies earnings around historical average levels before the market turned much more challenging after the pandemic. We retain our EUR 1.6 TP and REDUCE rating.